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Globalization of markets, technological developments, boom of equity markets and deregulation of finance industry have influenced retail banks and funds, (topic of this essay). Activities of both institutions will be described.

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Introduction

Financial markets and institutions have been changed enormously in the last 2 decades. Things like globalization of markets, technological developments, boom of equity markets and deregulation of finance industry have also influenced retail banks and funds, which are topic of this essay. Activities of both institutions will be described. Commonness, differences and clashes were both compete will be considered as well as recent trends. Retail banks provide a broad range of payment and financing services to their customers, which are individual persons or small businesses. Retail banks are authorized deposit-taking institutions (ADI's). That means they need a permission from the government to act. They could be normal banks, building societies or credit unions. Financing services are chiefly deposits and loans. Deposits mean they provide a safe haven, where customers can store their money. There are different types of those accounts. Current accounts are used for payments and transactions. They enable a fast access, but grant only low or no interest rates. Saving accounts are applied to accumulate funds. They are less liquid, but guarantee higher interest rates. In this category fixed-term, money-market and retirement accounts can be distinguished. Loans are the other kind of financing service retail banks provide. They take the money from depositors and provide it to debtors. ...read more.

Middle

Now companies compete for every single product and sell it separately, too. This also led to introduction of fees for services and the reduction of cross-subsidy. Because banks are not able to finance costs of payment services through the interest rate spread anymore as the spread diminished in recent years. RBA Bulletin: "Bank Fees in Australia", July 2001 That's a sign for more efficiency and competition in the retail banking sector. Now every service has to be profitable on its own. In following table the increase in fees for households and business as a per cent of deposits or credit can be seen. Fees for deposits for example increased by 100% for households and by 62.5% for business between 1997 and 2000. RBA Bulletin: "Bank Fees in Australia", July 2001 The total increase of banks' fee income can be recognized at next table. It shows a strong double-digit growth in recent years. RBA Bulletin: "Bank Fees in Australia", July 2001 But in relation to total assets the increase in banking fees didn't offset the reductions in interest margins. So banks total income shows a falling tendency in relation to assets since assets are growing strongly, too. RBA Bulletin: "Bank Fees in Australia", July 2001 Funds are collected money from individuals that is invested jointly in shares, bonds or the money-market. ...read more.

Conclusion

The real loan is provided by a fund manager or an issuer of securities. As a result ADI's reduced interest rates which led to a narrower interest spread. Another effect was that ADI's started to issue house loan securities themselves. Because of the advantages fund managers have in raising retail funds and issuing loan securities banks diversified and financial conglomerates have been established. For example, the AMP entered the banking market in 1998 or the Colonial Mutual Life Assurance Society Ltd. took over the State Bank of New South Wales. Such strategies seem to have some advantages for both company and customer. Costs can be reduced because one branch can be used to sell banking, investment and insurance products. And there's more efficiency having only one file per customer. The latter can profit by more convenience, getting tailor-made financial products in one place. All in all it can be concluded that competition in the finance industry has been increased in consequence of deregulation. Now more institutions are able to offer products. As a result every single one has to be competitive on its own. The boom of share markets and the advantages of fund managers in this sector led to the development of financial conglomerates as banks entered this field. Another important part was the evaluation of the internet and following possibilities of payment and "e-banking". The effects were a more efficiency financial sector as well as more, easier and cheaper services for customers. ...read more.

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